Model Shadow Stock Portfolio Questions

Comment on “Downward Estimate Revisions Screen Tops Unconventional Year,” by Wayne A. Thorp, CFA, in the January 2017 AAII Journal.

Why is the IISSP (Shadow) screen not included in the results? And if it is, what do you call it?
—Graham Wildsmith from Florida

Wayne Thorp responds:
This AAII Stock Screens annual review discusses the performance of hypothetical portfolios, whereas the Model Shadow Stock Portfolio is a real-money portfolio. We report the performance of the Model Shadow Stock Portfolio at the Model Portfolios area of AAII.com.

Comment on “Model Shadow Stock Portfolio: New Additions, Plus Value Leads,” by James B. Cloonan, in the January 2017 AAII Journal.

I started buying your recommended stocks some months ago and have experienced terrific appreciation. When I add a new stock, do I buy enough to make the position size equivalent to my average size of the other positions in the portfolio? So far, I’m just ball-parking the average size including appreciation when making a new purchase.
—Jeffrey Sonshine from Connecticut

Charles Rotblut responds:
Yes, target a purchase size equivalent to the average size of your existing holdings. This guidance applies to the Model Shadow Stock Portfolio, as well as AAII’s Stock Superstars Report and Dividend Investing portfolios.

Tips on Setting Retirement Spending

Comments on “Vanguard’s Dynamic Spending Strategy for Retirees,” by Colleen M. Jaconetti, Francis M. Kinniry Jr., Michael DiJoseph and Zoe B. Odenwalder, in the January 2017 AAII Journal.

I am reading this article as part of the Weekly Digest email, along with other withdrawal strategy articles. It surprises me that one important point is missed in each of these articles, and that is doing a proper retirement cash flow analysis just before retiring to help come up with a potential annual income need figure. These articles seem to want an investor to “back into” retirement by figuring out a withdrawal amount and then adapting the retirement lifestyle to the amount of income available.

Other benefits of a cash flow analysis include helping to determine if you CAN retire, how you will take distributions, determining when to take Social Security and many others. Once a good estimated need figure is determined, then you can design a proper withdrawal strategy.
—Andrew Shuman from Maine

A factor rarely mentioned is the income tax impact from a floating withdrawal scheme. If one is attempting to stay in the (current) 15% federal bracket and is taking withdrawals to avoid jumping into the 25% bracket, the goal is generally to stay within a particular income level to avoid a tax increase. The alternative is to take advantage of an up year in the market to raise realized income with a substantial increase in tax owed on the additional income.

Individual circumstances will vary, but for many a $4,000 increase in income taxed at 25% (not even considering state income taxes, but you should) may not be as attractive as letting the potential “extra” disbursement (up to the predetermined ceiling) remain invested to be used in the future during a down market. For those with plenty of “headroom” before they hit the next highest bracket, the floating disbursement strategy might be more appealing.
—Mike from California

Meditation Apps for Investors

Comment on “The Role Meditation Can Play in Investing,” by Jason Voss, in the January 2017 AAII Journal.

Dan Harris has now produced an app (iOS) that is also called “10% Happier.” It includes interviews with mindfulness experts and guided meditations. I liked Headspace but have learned a great deal from 10% Happier and prefer it.
—Gene Colgan from Texas

Insights From Earnings Estimate Changes

Comment on “Stocks With the Largest Percentage Change in Earnings Estimates,” by John Bajkowski, The First Cut column in the January 2017 AAII Journal.

Intriguing insightful collection of data. Glad to study it in making several decisions.
—William Maxwell from Missouri